Polymarket

#Overview

Polymarket is a decentralized prediction market platform that allows users to trade on the outcomes of real-world events using USDC stablecoins. Built on the Polygon blockchain, it has become one of the largest prediction markets by trading volume, particularly for political and economic events.

The platform operates without a central authority controlling market creation or resolution. Instead, it relies on blockchain infrastructure and decentralized oracle systems to execute trades and determine outcomes. This design enables global participation, 24/7 trading, and transparent on-chain settlement.

#History and Background

Polymarket launched in 2020, founded by Shayne Coplan. The platform emerged during a period of growing interest in both decentralized finance (DeFi) and prediction markets as tools for aggregating information.

In early 2022, Polymarket reached a settlement with the U.S. Commodity Futures Trading Commission (CFTC) regarding the operation of unregistered event contracts. Following this settlement, the platform implemented geographic restrictions for U.S. users while continuing to operate internationally.

The 2024 U.S. presidential election cycle brought significant attention to Polymarket, with trading volumes reaching hundreds of millions of dollars on election-related markets. This surge demonstrated both the demand for prediction markets and their potential as alternative sources of probabilistic forecasting.

#Polymarket Architecture

#How It Works

#Account Setup

Trading on Polymarket requires a cryptocurrency wallet and USDC tokens on the Polygon network:

1. Connect a wallet: Users link a Web3 wallet (such as MetaMask or Coinbase Wallet) to the platform.
2. Fund the account: Deposit USDC to the Polygon network. The platform offers direct onramps via credit card or crypto transfers.
3. Browse markets: Explore available markets across categories like politics, economics, sports, and entertainment.
4. Place trades: Buy Yes or No shares representing beliefs about event outcomes.

#Trading Mechanics

Polymarket uses a hybrid-decentralized Central Limit Order Book (CLOB) system:

• Order submission: Users submit bids directly to the Polymarket API (off-chain)
• Order matching: Polymarket operators match bids centrally
• Settlement: Matched trades execute on-chain via the Polygon blockchain
• Outcome tokens: Positions are represented as ERC-1155 tokens under the Gnosis Conditional Tokens Framework (CTF), making them transferable and composable with other DeFi protocols

This hybrid design combines the efficiency of centralized order matching with blockchain-based custody and settlement.

Technical Infrastructure

The platform's architecture consists of several key components:

For algorithmic traders, the WebSocket API provides real-time access to:

• Order book updates and trades
• Price changes and market movements
• New market creation events

Order Matching Types

Share prices range from $0.01 to$0.99, reflecting the market's implied probability for each outcome. A Yes share priced at $0.70 implies the market believes there is a 70% chance the event occurs.

#Tick Size

Polymarket uses a dynamic tick size system:

This dynamic adjustment enables more precise pricing at probability extremes, where the difference between 97% and 98% carries significant information value. See Polymarket Tick Size for complete details.

#Payouts

When a market resolves:

• Winning shares pay out $1.00 in USDC
• Losing shares become worthless ($0.00)

For example, if a trader buys 100 Yes shares at $0.40 each ($40 total cost) and the event occurs, they receive $100, a profit of$60.

#Trading Example

Scenario: You believe the Fed will cut rates in September.

1. Find Market: "Will Fed cut rates in September?"
2. View Prices:
   • YES: $0.65 (65% probability)
   • NO: $0.35 (35% probability)
3. Place Trade:
   • You buy 100 YES shares at $0.65
   • Cost: $65.00 USDC
4. Outcome:
   • If Fed cuts rates: Market resolves YES. You redeem 100 shares for $100 USDC. Profit:$35.
   • If Fed holds/raises: Market resolves NO. Shares are worthless. Loss: $65.

#Key Features

#Decentralized Resolution

Polymarket uses the UMA Optimistic Oracle for market resolution:

1. A proposer submits the outcome after the event occurs, posting a bond.
2. A challenge period (typically 2 hours) allows anyone to dispute incorrect proposals.
3. If disputed, UMA token holders vote on the correct outcome.
4. If unchallenged, the proposed outcome is finalized and payouts are distributed.

This system removes the need for a centralized authority to determine results while maintaining accountability through economic incentives.

#Market Types

The platform supports several market structures:

• Binary markets (Single-condition): Yes/No outcomes (e.g., "Will X happen by Y date?")
• Categorical markets (NegRisk markets): Multiple mutually exclusive outcomes sharing a market ID (e.g., "Who will win the election?")
• Scalar markets: Numeric ranges (less common on Polymarket)

Market Structure Data

Analysis of Polymarket markets (April 2024 - April 2025) reveals:

NegRisk markets average ~5.4 conditions each, with the largest markets (like presidential elections) containing dozens of possible outcomes.

Market Categories by Volume

#Liquidity Infrastructure

High-volume markets on Polymarket often feature significant liquidity, provided by:

• Professional market makers
• Automated market maker pools
• Individual traders placing limit orders

Deep liquidity reduces slippage and allows larger positions to be entered or exited without substantially moving prices.

#Supported Markets

Polymarket offers markets across diverse categories:

Politics

• U.S. and international elections
• Policy decisions and legislative outcomes
• Geopolitical events

Economics

• Federal Reserve interest rate decisions
• Inflation metrics (CPI, PCE)
• Economic indicators and data releases

Technology

• Product launches and company announcements
• AI development milestones
• Cryptocurrency price thresholds

Sports and Entertainment

• Championship outcomes
• Award show winners
• Cultural events

Market availability varies based on user demand and the ability to define clear, verifiable resolution criteria.

#Fees and Costs

#Trading Fees

Polymarket charges fees on trades, typically structured as:

• A percentage fee on the notional value of trades (historically around 2%, though this varies)
• Fees may differ between market makers and takers

#Network Costs

• Gas fees: Polygon network transactions cost fractions of a cent (typically $0.001–$0.01)
• Bridging costs: Moving funds from Ethereum mainnet to Polygon incurs Ethereum gas fees, which vary with network congestion

#No Custody Fees

Since users maintain control of their own wallets, there are no ongoing custody or account maintenance fees.

#Developer Access: Polymarket API

Polymarket provides a robust API for programmatic trading, market data, and automated strategies. The platform has become a popular target for algorithmic trading systems, including AI-powered trading agents.

#Algorithmic Trading Ecosystem

Several open-source frameworks enable automated trading on Polymarket:

These tools enable strategies ranging from simple automation to sophisticated AI-driven analysis using Large Language Models (LLMs) for market research and decision-making.

#Fetching Markets (CLOB API)

const axios = require('axios');

async function getMarkets() {
  const url = 'https://clob.polymarket.com/markets';
  
  try {
    const response = await axios.get(url);
    // Filter for active markets
    const activeMarkets = response.data.filter(m => m.active);
    console.log(`Found ${activeMarkets.length} active markets`);
    
    // Example output structure
    if (activeMarkets.length > 0) {
      console.log("Sample Market:", activeMarkets[0].question);
    }
  } catch (error) {
    console.error("Error fetching markets:", error);
  }
}

getMarkets();

#Order Book Structure

Polymarket uses a Central Limit Order Book (CLOB). Developers can interact with it to provide liquidity or execute trades.

{
  "market_id": "0x...",
  "bids": [
    { "price": "0.65", "size": "1000" },
    { "price": "0.64", "size": "5000" }
  ],
  "asks": [
    { "price": "0.66", "size": "2000" },
    { "price": "0.67", "size": "1500" }
  ]
}

#Strengths and Limitations

#Strengths

• Global access: Available to users worldwide (excluding restricted jurisdictions)
• 24/7 trading: Markets operate continuously, unlike traditional exchanges with trading hours
• Transparency: All trades and resolutions occur on-chain, publicly verifiable
• No account minimums: Traders can start with small amounts
• Self-custody: Users retain control of their funds in their own wallets

#Limitations

• Crypto knowledge required: Users must understand wallets, gas fees, and blockchain basics
• Regulatory restrictions: Unavailable to U.S. residents following the 2022 CFTC settlement
• Oracle dependency: Resolution relies on the UMA system, introducing potential dispute risks
• Volatility in fees: Ethereum bridging costs fluctuate with network congestion
• Limited recourse: As a decentralized platform, traditional customer support and dispute resolution options are limited

#Regulatory History

• 2020: Polymarket launches.
• Jan 2022: CFTC fines Polymarket $1.4M for offering off-exchange event contracts. Polymarket agrees to block US users.
• 2024: Polymarket explodes in popularity globally, becoming the primary source of election odds.
• Future: The platform operates in a grey area for US users (who often use VPNs), but strictly enforces geoblocking in its terms.

#2024 Election: Polymarket at Scale

The 2024 U.S. presidential election demonstrated Polymarket's capacity as a forecasting tool:

The election period drove unprecedented activity, with politics markets dominating all other categories. The 2024 Presidential Election market alone processed over $250 million in open interest using the NegRisk structure.

Market Efficiency During Elections

Research analyzing the 2024 election found:

• 128 NegRisk markets and 177 single-condition markets related to Politics on election day (November 5, 2024)
• 13 pairs of dependent markets identified where arbitrage opportunities existed between logically connected outcomes
• Price discovery occurred within seconds of vote count releases, with traders updating positions faster than traditional media could report results

#Related Terms

• Prediction Market
• Kalshi
• Order Book
• Liquidity
• UMA (Optimistic Oracle)
• Outcome Token
• Binary Market
• Resolution Source
• Polymarket Tick Size
• Tick Size

#FAQ

#What is Polymarket used for?

Polymarket is used for trading on the outcomes of real-world events. Traders buy shares representing their predictions, with prices reflecting collective probability estimates. It serves both speculative traders seeking profit and information consumers looking for market-based forecasts.

#How does Polymarket differ from Kalshi?

Kalshi is a U.S.-regulated exchange operating as a Designated Contract Market under CFTC oversight, available to U.S. residents with traditional payment methods. Polymarket is a decentralized, crypto-native platform using blockchain settlement, unavailable to U.S. users. Kalshi offers regulatory protections but has more limited market types; Polymarket offers broader market coverage but requires crypto familiarity.

#Is Polymarket legal?

Polymarket's legal status depends on jurisdiction. Following a 2022 CFTC settlement, the platform geo-blocks U.S. users. In many other countries, prediction market trading occupies a legal gray area. Users should verify local regulations before participating. The platform's decentralized nature means enforcement varies by region.

#Can you withdraw money from Polymarket?

Yes. Users can withdraw USDC from their Polymarket wallet to their connected cryptocurrency wallet at any time. From there, funds can be bridged to other networks or converted to fiat currency through exchanges. Withdrawals are processed on-chain and typically confirm within seconds on Polygon.

#Is Polymarket risky for beginners?

Polymarket carries risks typical of both prediction markets and cryptocurrency platforms. Market risk exists: positions can lose value or become worthless. Technical risks include wallet security, private key management, and understanding blockchain transactions. Beginners should start with small amounts, thoroughly read market resolution rules, and ensure they understand both the prediction mechanics and the underlying crypto infrastructure.